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Why UK universities are short of money

The BBC has reported that the UK’s universities are in dire financial circumstances.

“The higher education sector overall is predicting a 4% "real terms" deficit - partly due to a £2bn shortfall in research funding and high staff costs.

A few universities have surpluses, but most are not setting aside enough for future challenges.”

The situation is most acute for Scottish universities. English universities have income from top-up fees [up to £3175 per student per year]. The Scottish government has refused to either allow their universities to charge top-up fees, or to provide the universities with adequate alternative funding.

Whilst the governments may appear to be the villains in this piece the universities have also done much to damage their financial situation, by recklessly bidding up their salaries bill.

In 1986 a medium sized academic department might have had a complement of one professor, two senior lecturers and seventeen lecturers. By 2008 the number of staff might well not have increased [despite a doubling in the number of students] but the composition would have changed. Now that same department might have five professors, seven senior lecturers and only eight lecturers.

A comparison of the annual employment costs [using 2008 salaries, pension and NI contributions] of the department shows that they will have increased from £1,100,000 in 1986 to £1,233,000 in 2008. This is an increase of £133,000 pa or over 12%. This increase is entirely due to re-grading. Cost of living increases are not included.

If we multiple one department’s increased staff costs by the forty departments that might be found in a typical university then we find that the university would have increased its annual staff costs by £5,320,000, solely due to re-grading.

Why have universities put themselves in this situation? The answer is the Research Assessment Exercise (RAE). This was introduced in 1986 and has taken place every five years. University departments are assessed on the quality of their research and research funding is allocated accordingly. Research quality is assessed by looking at the number and quality of research papers published by members of staff.

The RAE has had a number of disastrous effects on UK universities. One of them has been the increase in staff costs described above.

Bidding up salaries

After the RAE was introduced universities entered into a foolish bidding war to recruit the staff with the highest research profiles. Universities wanted the staff with the best list of publications. Teaching was not taken into account. In pursuit of the best CVs existing staff were retained with promotions. Often this meant that people who would have been fortunate to become senior lecturers became professors. Research active academics were recruited from other universities in the UK and overseas by offering senior lectureships and chairs. All this was very nice for the promoted staff but the bidding war meant that universities were constantly increasing their salaries bill. Once a university decided to chase a higher RAE rating then it was committed to a long term bidding war with other universities.

A few universities, such as the members of the Russell Group, might have made a profit from the RAE exercise. By that I mean the extra [compared to pre 1986] research funding they received might have exceeded their extra staff costs. Most departments and universities made a loss on the RAE.

Why did they do it?

Most academics are not good at accountancy.

Ego was a factor. No Vice-Chancellor wanted to be the chap with the smallest RAE rating.

Academics benefited enormously from the process and were eager to encourage it. If a lecturer wrote six papers and had them published in reputable journals they could earn an extra £8,000 per annum after being promoted from lecturer to senior lecturer. If we assume that at the time of promotion they had 25 years of working life remaining and a further 25 years of retirement [at half pay] then they would receive a total of £400,000 for their six publications [or £66,667 per paper]. It is hard to imagine any commercial organization so grossly overpaying.

What now?

The RAE is to change following the Roberts Report. However, its effect will linger on for many years in the form of over promoted and over paid staff.

I do not believe that governments should provide any financial bail out for universities until they demonstrate that they have a plan for dealing with the excessive number of professors and senior lecturers now in post.